"Starting today, Walmart has dropped prices on both the iPhone 5 and iPhone 4S, with the 16 GB iPhone 5 now on sale for just $127 and the iPhone 4S coming in at $47." I'm sure a 33% price cut right ahead of the holidays is totally normal for a product of which demand outstrips supply. Right?

That might be true if after your contract, the price of your monthly service went down. If you are paying the same amount per month regardless of your contract, then that price doesn't really factor into the equipment cost from a customer point of view.